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Table 1. Budget Revenues By Level Of Government, As Percent Of GDP 8 Table 2. Shares Of Different Government Levels In Consolidated Itemized Revenues, % 10 Table 3. Shares Of Itemized Revenues In Total Revenues At Different Levels Of The Government, % 11 Table 4. Budget Expenditures by Level of Government, as Percent of GDP 13 Table 5. Shares Of Different Government Levels In Consolidated Itemized Expenditures, % 14 Table 6. Shares Of Itemized Expenditures In Total Expenditures At Different Levels Of The Government, % 15 Table 7. Budget Balance By Level Of Government As Percent Of GDP, on a Cash Basis 16 Table 8. Budget Balance Before Transfers By Level Of Government As Percent Of GDP, On a Cash Basis 16 Table 9. Shares Of Local Governments In Total Consolidated Regional Revenues and in Select Consolidated Regional Tax Revenues, % 17 Table 10. Shares Of Local Governments In Total Consolidated Regional Expenditures and In Select Consolidated Regional Expenditures, % 19 Table 11. Average Shares Of Local Governments In “Social Protection” Outlays In The Northern Region And In The Russian Federation, %
Decentralization in Regional Fiscal Systems in Russia: Trends and Links to Economic Performance Lev Freinkman Plamen Yossifov The World Bank* Ph.D student in Economics at the University of Delaware The work on this project was conducted during a summer internship at the World Bank (ECSPE) in the summer of 1998 * The views in this paper are those of the authors and should not be attributed to the World Bank We are grateful to Daniel Treisman for fruitful discussions of various aspects of the analysis presented here and to Alexei M Lavrov for sharing with us the database on Russian regional budgets Comments by Martha De Melo were also quite helpful Table of Contents Section Introduction Section Data Section Analytical framework Section Main trends in fiscal decentralization, 1992-1996 Section Decentralization at the regional level 16 Section Measures of regional decentralization and subordination 21 Section Decentralization and economic performance 29 Section Conclusions 42 References 44 Appendixes 46 List of Tables Table Budget Revenues By Level Of Government, As Percent Of GDP Table Shares Of Different Government Levels In Consolidated Itemized Revenues, % 10 Table Shares Of Itemized Revenues In Total Revenues At Different Levels Of The Government, % 11 Table Budget Expenditures by Level of Government, as Percent of GDP 13 Table Shares Of Different Government Levels In Consolidated Itemized Expenditures, % 14 Table Shares Of Itemized Expenditures In Total Expenditures At Different Levels Of The Government, % 15 Table Budget Balance By Level Of Government As Percent Of GDP, on a Cash Basis 16 Table Budget Balance Before Transfers By Level Of Government As Percent Of GDP, On a Cash Basis 16 Table Shares Of Local Governments In Total Consolidated Regional Revenues and in Select Consolidated Regional Tax Revenues, % 17 Table 10 Shares Of Local Governments In Total Consolidated Regional Expenditures and In Select Consolidated Regional Expenditures, % 19 Table 11 Average Shares Of Local Governments In “Social Protection” Outlays In The Northern Region And In The Russian Federation, % 20 Table 12 Measures Of Fiscal Decentralization, % 22 Table 13: Revenue Decentralization By Administrative Type Of Region, % 23 Table 14: Expenditure Decentralization By Administrative Type Of Region, % 24 Table 15 Measures Of Fiscal Subordination Of Subnational Governments In The Period 1994 – 1996, % 25 Table 16: Fiscal Subordination Of Local Governments By Administrative Type Of Region, % 26 Table 17: Fiscal Subordination Of Regional Governments By Administrative Type Of Region, % 27 Table 18: Coefficients Of Correlation Between Measures Of Fiscal Decentralization And Subordination In Russian Regions 28 Table 19 Determinants Of Fiscal Decentralization 32 Table 20 Impact Of Decentralization On The Structure Of Budget Expenditures 35 Table 21 Impact Of Decentralization On Fiscal And Economic Performance 39 Appendix 1: Budget Revenues By Level Of Government,Mln Current Rubles 46 Appendix 2: Budget Expenditures By Level Of Government,Mln Current Rubles 48 Appendix 3: Budget Balance By Level Of Government, Mln Current Rubles 50 Appendix 4: Budget Balance Before Transfers By Level Of Government,Mln Current Rubles 50 1 Introduction Fiscal decentralization in Russia has been an important dimension of reforms since 1992 The issue has received a lot of attention recently in academic literature (Lavrov, 1995; Le Houerou, 1995; McLure at al, 1995; Treisman, 1998a; Wallich, 1994) As a rule these studies have been focused at three aspects of evolving Russian federalism: delegation of specific revenue and expenditure assignments to regional governments, relationship between federal and regional budgets through various types of explicit and implicit transfers, and cross-regional budget equalization The main purpose of this paper is to look at one more aspect of the decentralization process, which relates to inter-government fiscal relations within the regions The paper focuses on two elements of such process The first reflects overall trends in allocation of fiscal resources within regional fiscal systems, primarily between regional and municipal levels of the government We review both channels of fiscal allocation within regions tax sharing and local transfer schemes The second element relates to potential impact of various decentralization patterns on regional economic performance, such as economic growth and budget deficit We use the data on the structure of 89 Russian consolidated regional budgets in 1992-96 to determine basic statistical characteristics of the decentralization process over the period and to provide correlation and regression analysis of links between decentralization, regional indicators of social and industrial structure, and economic performance Section provides a brief description of the data Section presents an analytical framework used for developing a statistical model Section reviews trends in the distribution of revenue and expenditure assignments between the federal, regional and municipal governments Section presents a more detailed analysis of fiscal decentralization in Russian regions through the examination of trends in local governments’shares in main types of consolidated regional budget revenues and expenditures In Section 6, we suggest simple indicators of fiscal decentralization and subordination at the regional level and conduct their statistical analysis Finally, in Section we run a panel-data regression analysis of potential determinants of the fiscal decentralization process We also explore relationships between these indicators and regional economic performance Section brings main conclusions Data This paper was inspired by the work of Lavrov (1996a), for which a special database on the structure of the Russian regional budgets for 1992-95 was collected1 Dr Alexei Lavrov also shared with us the database, which derives from the standard reporting forms filed by regions with the federal Ministry of Finance He also provided additional budget data for 1996 The database contains data on consolidated budgets for each level of subnational governments (regions, cities of regional status, rayons, cities of rayon status, rural municipalities) for all 89 regions In a sense we had access to quite a unique data set Systematic analysis of local budgets in Russia and their relationships with higher level budgets is usually limited by lack of representative data As a result, the research is based on small samples or case studies (Freinkman and Titov, 1994; Mitcheneck, 1997a; World Bank, 1998; Zhuravskaya, 1997) The data reflect actual outcomes of annual budget execution (i.e it is not just agreed budget allocation) According to Russian budget accounting standards, the data include both cash and non-cash components of the actual budget flows, i.e include budget revenues and expenditures occurred e.g through barter or cancellation of mutual debts Also, as is usual for Russian budget statistics, subnational Some results of this report were also presented in the paper by Kuznetsova, Lavrov and David (1997) budgets are separated and not include financial operations of municipal companies (other than budget subsidies to these companies) We explored the database with a special focus on decentralization of consolidated regional budgets The major differences in our approach compared to the one in Lavrov (1996a) include: (a) We consolidated all types of local governments (i.e governments below the regional level) and did not try to look at any differences between them While budget mechanisms in different types of municipalities are quite different (especially between major cities and rural rayons and municipalities), these differences are less important from a decentralization perspective compared to a fundamental contrast between municipalities in general and regional administrations At the same time, the size of the consolidated budget of all municipalities in each particular region is usually determined by the budgets of few largest cities that amount to 70-80% of the total Thus, the share of all local budgets in the regional fiscal system could be considered as a proxy for the relative budget role of the largest urban municipalities As it is shown below, the latter could be a potentially important variable related to the economic performance of regions (b) We excluded all interbudgetary transfers within the regions from further consideration Netting out interbudgetary transfers is important, because the direct summation of total revenues/expenditures results in a substantial double counting and to overestimation of the real amount of fiscal resources being controlled by local governments Because of a multi-level structure of local governments in Russia, intergovernment fiscal flows are quite intensive and could amount to 30% of gross (i.e including transfers) total local budget revenues (see also Data Appendices) (c) We excluded the cities of Moscow and St Petersburg, which have a double status of “regionmunicipality” from the analysis Given their weight in the total fiscal flows, such exclusion may change substantially statistical characteristics of the sample and influence conclusions of the analysis (d) Compared to the original work by Lavrov (1996a), we tried to develop a more comprehensive statistical analysis of the data, including cross-regional variation of main parameters and factor analysis of decentralization (e) Finally, we have used the data to explore the links between decentralization and regional economic performance, which provides an opportunity to compare some conventional predictions of the decentralization theory with actual numbers Also, we’ve had an opportunity to incorporate the 1996 budget outcomes into the database Given considerable stabilization efforts in Russia in 1995 such an extension may provide important additional information Data on 1996 reflect some initial post-stabilization fiscal realities, which could be different from the trends observed during the inflationary phase of 1992-95 All data on the federal budget is based on the reports from the Ministry of Finance with some adjustments done by the staff of the World Bank (Le Houerou, 1995; World Bank, 1998) to incorporate major types of off-budget operations of the central government As usual in this kind of analysis, we not consider here main extra-budgetary funds (such as the Pension fund) which operate outside of the traditional government budget An important caveat relates to the quality of the data, that was affected by various incentives of local governments to underreport their budget revenues and hide them using all kinds of extrabudgetary accounts (World Bank, 1998) Still, we believe that the data quality is sufficient for adequate evaluation of prevailing trends in the subnational budget system 3 Analytical framework Political and fiscal decentralization has recently become a global trend that is widely considered to be supportive of economic growth and more efficient provision of public services (Bahl and Linn, 1992) These gains could derive from informational advantages of local governments, which are better positioned to reflect recipients’preferences in the process of service delivery as well as from competition between local governments (Oates, 1972)2 Political dimension of the decentralization is also viewed quite positively because it facilitates establishing and strengthening of democratic institutions (Inman and Rubinfeld, 1997) By conventional measures fiscal decentralization in Russia has been evolving quite successfully in 90-es Consolidated regional budgets are now responsible for about a half of total budget spending, while their share amounted to about 15% in late 80-es (Freinkman and Haney, 1997) However, given the relatively large size of most Russian regions, it is not clear if devolution of functions from the center to regions is sufficient for enjoying all decentralization gains mentioned above If most resources and functions are concentrated within regional governments and not delegated to the local level, there is a risk that the single centralized state would be replaced by numerous centralized entities of smaller size that could neither exploit informational advantages nor be seriously influenced by competitive pressures In the latter case, another stage of the decentralization process would be required to force regions to share more resources with local governments In reality, the Russian environment for decentralization is characterized by wide opportunities for the regions to decide almost unilaterally on specific arrangements for power and budget sharing with municipalities A legal framework for fiscal federalism at the regional level is quite weak and regional authorities have full discretion not just for determining a desirable degree of centralization and redistribution of fiscal flows but also for frequently changing the rules of the game (World Bank, 1998) Recent analysis of various aspects of economic policy conducted by Russian regional governments suggests high cross-regional variation in both chosen strategies and to-date outcomes of economic development (Lavrov, 1996b) as well as in regional governance regimes (Mitcheneck, 1997b) In such an environment, it seems quite likely to expect a substantial cross-regional variation in actual decentralization patterns Regions may experiment with more or less centralized schemes depending on their political preferences, specifics of economic structure, and social and geographical features Given mentioned above predictions of the theory of fiscal federalism, one may expect that the actual degree of regional decentralization would matter: more decentralized regions, all other factors equal, would demonstrate stronger economic growth (less decline) Thus recent Russian developments provide an interesting statistical material – a relatively large sample of similar government entities that have been pursuing different decentralization policies to be tested against some conventional theoretical principles Traditionally, impact of decentralization on economic performance is studied based on cross-country regressions, which have their own limitations related to high heterogeneity of the sample by too many parameters Decentralization is a complex multidimensional process, and its impact on economic performance is difficult to isolate from influences of various cultural, political, and historical factors In this respect, the sample of Russian regions is much more homogeneous because, notwithstanding existing cross-regional variation, all regions of Russia have strong common roots in modern history of the Russian/Soviet state This common cultural and political background may provide more chances for identification and accurate statistical measuring of links and correlations in the sample Zhang and Zou (1997) provide a general model for analyzing the impact of inter-government and inter-sectoral allocation of budget expenditures on economic growth There are some country-specific arguments in support of a possible positive link between regional decentralization and regional growth in Russia Recent experience of the most advanced countries in transition demonstrated that economic recovery and growth is primarily concentrated in the largest cities (urban municipalities) which is associated with more favorable industrial structure, better access to infrastructure and human capital in metropolitan areas But in Russia, local governments in urban areas of potential economic growth, face economic disincentives that derive from excessive and discretionary centralization of fiscal gains that such a growth may bring Under current fiscal arrangements, the rules of tax sharing between the local and regional governments are negotiated annually— or sometimes several times a year The shares tend to be differentiated sharply across municipalities, with a few largest industrial centers often contributing large shares of main taxes, while rural rayons keep 100 percent and also receive most of regional budget transfers The sharing rates vary not just between urban and rural districts within the same oblasts, but also between urban districts in different oblasts In 1993, the city of Tver was permitted to keep percent of profit tax revenues, 4.3 percent of VAT, and percent of personal income tax collected in the city The rest went to federal and regional budgets The corresponding rates for the city of Yaroslavl, however, were 12, 10 and 80 percent (Institute for Local Government, 1994) Research suggests that urban municipalities are punished for better revenue performance by having their tax shares lowered One study of the budgets of 35 large cities in 29 Russia’s regions in 1992-97 found that for every ruble that a local budget’s own revenues increased in a given year, about 90 kopecks were taxed away by reductions in the transfers and tax shares that the superior regional government allowed (Zhuravskaya, 1998) Thus, any increase in the effectiveness of tax collection or increase in local revenues due to growth-promoting policies would be unlikely to make the local governments better off than before Analysis of the trends in tax sharing rates for rayon budgets in Yaroslavl oblast in 1994-98 also suggests that urban municipalities are the most affected by the existing system (World Bank, 1998) As in most other Russian regions, all the 12 rural rayons are recipients of transfers within the regional budget system and always have been getting maximum possible tax shares In contrast, all urban rayons are facing a gradual decline in their tax share The rate of this decline is not monotonic, influenced by bargaining power of specific municipal leaders, and hardly could be predicted in advance by municipal authorities Overall, these examples may suggest that large urban municipalities in Russia are the main beneficiaries from decentralization of regional budgets Decentralization brings them more resources and more incentives to use them more efficiently While we believe that in Russia, as in other countries in transition, an average rate of return of budget spending is much higher in urban centers, then decentralization may support growth through simple reallocation of resources from less to more efficient users.3 For further justification of this argument, it is necessary to look at differences in the structure of budget spending at various government levels Different combinations of investment, subsidies, and social spending have a different impact on economic growth From this perspective, there is an evidence that it is regional governments who are responsible for most enterprise subsidies remained in the Russian fiscal system (Freinkman and Haney, 1997) These subsidies are a serious barrier for restructuring of recipient enterprises, which are usually the largest local companies with a sufficient lobbying power to By the same reason, decentralization, by reducing redistribution, may lead to an increase in fiscal inequality across local governments, especially between urban and rural municipalities extract budget funds It sounds plausible that less decentralized regional fiscal systems (i.e with a higher share of regional governments) would tend to have more subsidies, less enterprise restructuring and less growth Recent analysis of the relation between decentralization and growth in developing countries found, contrary to the theoretical predictions, a negative correlation between these two variables These results hold for three different cases: a cross-country model estimated for 46 developing countries (Davoodi and Zou, 1998), cross-country model for developed and developing countries (Fukasaku and De Melo, 1997), and cross-provincial model for a specific country, China (Zhang and Zou, 1998).4 Several factors are named that could be responsible for this inconsistency between the theory and the outcome of statistical analysis They include: (i) wrong composition of expenditure made by local governments, which may in part derive from the fact that local governments in many countries are not elected and thus not responsive to local preferences; (ii) local government autonomy in expenditure decisions may be limited due to excessive interventions of the central government; in other words, simple measures of fiscal decentralization based on a share of subnational governments in consolidated budget expenditures may overestimate actual degree of decentralization; (iii) in some countries (e.g China) programs of the central government could be more efficient due to nation-wide externalities associated with large infrastructure projects and similar types of spending While traditionally decentralization and growth were seen as positively correlated, impact of decentralization on fiscal performance was usually considered as potentially more problematic (Wildasin, 1998) These worries that decentralization may contribute to fiscal imbalance and accumulation of public debt have become stronger recently (Tanzi, 1996) in part as a reflection of subnational debt crisis in Latin America (Dillinger and Webb, 1998) However, available theoretical and empirical work does not provide sufficient support for the validity of these concerns (Hunter and Shah, 1998; Fornasari at al., 1998) In particular, Wildasin (1997) argues that ultimate impact of the decentralization on fiscal performance is highly dependent upon basic characteristics of the system of inter-governmental fiscal relations such as transparency, accountability, and predictability He also suggests that the size of individual subnational governments could be of critical importance: some subnational governments are just too large to fail and have weak incentives for responsible fiscal policy The latter leads to a higher probability of their default to be followed by bailout by the central government Another recent paper (Fornasari at al., 1998), which was also based on the cross-country analysis, shows that the size of subnational government is positively correlated with the size of the national budget deficit However, the paper examines the effect of an absolute size of subnational governments (as percent of GDP), not their relative size (as percent of the overall government size), which would be a more appropriate measure of decentralization Also, these results still not address a more a general question – what is the impact of the decentralization on the overall fiscal performance (consolidated budget deficit)? From this perspective, it seems interesting to explore the impact of decentralization on fiscal performance within the sample of Russian regions Changes in a degree of decentralization lead to substantive modifications in institutional setting for the budget management Peculiar features of budget institutions are likely to bring about changes in fiscal performance (Alesina, 1996) Thus, it is easy to expect some correlation between decentralization and e.g size of budget deficit But what may be a sign of such correlation? On one side, following Wildasin’s model, one may argue that, given all existing non4 However, for India the same authors (Zhang and Zou, 1997) found that most measures of decentralization are positively correlated with the state economic growth In both cases, for China and India, they consider a two-level government model with the municipal level being excluded from analysis Also, the recent study by Hunter and Shah (1998) provides some but very indirect evidence of positive link between decentralization and growth They develop an index of good governance and show that the index is positively related to both decentralization and economic growth transparency and non-predictability in budget relations between regional and municipal governments, more decentralized regions would have less fiscal discipline and higher budget deficits On the other side, in the Russian environment, individual local governments have less access to capital markets than regional ones because municipalities have less control over their revenue flow and thus are considered by creditors as more risky So far, most of subnational debt and deficit in Russia was concentrated at the regional level, which to large extent reflects restricted opportunities of local governments to attract deficit financing (World Bank, 1998) Also, decentralization, by reducing the size of regional governments, effectively limits their opportunities to borrow relatively to the size of the consolidated regional budget Thus, one may expect that more decentralized fiscal systems, in which local governments control a relatively larger portion of total budget, would carry less debt and deficit Main trends in fiscal decentralization, 1992-96 The legal framework for local decentralization is provided by several federal laws that in general give regional legislature almost unlimited power for sharing fiscal resources with municipalities (Lavrov, 1996a; Yandiev, 1997) There are two primary channels for decentralization of budget funds: tax sharing and regional budget transfer program (World Bank, 1998) Under current arrangements, the shares of shared taxes that each local budget receives are negotiated annually or sometimes several times a year - between the local and regional governments As mentioned above, the shares tend to be differentiated sharply across municipalities A specific feature of fiscal decentralization in Russia relates to a very limited role of local taxes in subnational budgets The lion’s share, about 75%, of all subnational tax revenues derives from four major federal taxes that are shared on a derivation basis and neither regional nor local governments have leverage regarding tax rates and tax bases of these taxes Conflicts related to intra-regional allocation of subnational shares of main tax between regional and municipal governments constitute a center part of the whole budget preparation process Local governments have very limited room for collecting more revenues through additional taxation In 1996-97, the single largest local tax - tax on upkeep of social assets - amounted to 7-10% of total budget revenues in cities that have used it actively However, the draft Tax Code provides for elimination of this tax (together with other similar taxes levied on gross turnover) At the same time, insufficient discretion of local governments over their tax sources does generate lack of accountability: local leaders may always argue that higher levels of government deprive them from any instruments to increase revenues and thus improve service delivery For local governments in areas of potential economic growth, the expectation of punitive extraction by the regional government creates incentives to keep their budget revenues hidden Anecdotal evidence suggests that the reported numbers on the size of municipal budgets may exaggerate the actual degree of regional decentralization This caveat is important for adequate interpretation of the data that follow Various expenditures could be nominally funded from local budgets while decisions on their allocation may be made at the regional level, with municipalities merely executing regional government decisions Some regions have recently recentralized some types of expenditures, such as infrastructure investments At least among regions, which are recipients of large amounts of federal transfers, regional authorities have much control over the revenue and expenditure patterns of municipal governments The widespread use of non-cash schemes for budget execution further supports such a trend toward greater regional control since schemes of mutual settlements enjoy significant economies of scale However, this trend is balanced to some extent with strengthening of practice of local elections and establishment of structures of local-self government, which feel sufficient popular support to stand regional pressures Between 1992 and 1996, the relative size of the enlarged Russian government, measured by the size of its budget, has shrunk substantially However, as seen from Tables 1-6, the observed downsizing of the Russian government was not similar across the different government levels The consolidated budget revenues5 of all levels of the government fell from 33.4% of GDP in 1992 to 27.2% in 1996 (Table 1) During that period, federal government’s total revenues shrunk from 20.1% of GDP to 14.5% in 1996, while subnational governments saw little change in the size of their revenues relative to GDP As a result, by 1996 subnational governments controlled 46.5% of consolidated budget revenues net of interbudgetary transfers, up from 39.8% in 1992 (Table 2) All this decentralization shift happened in 1992-94, while in 1995-96 the share of the federal government regained some ground The relative share of local governments in the Russian consolidated budget did not expand much since 1994 and they remain in control of about a quarter of total budget expenditures However, at the subnational level, the relative size of the local budgets increased at the expense of some compression in regional budgets 1996 was the first year, when local governments collected more budget revenues (6.4% of GDP) than regional administrations As seen in Table 1, the overall decline in consolidated government revenues relative to GDP can be largely attributed to weakening tax collection Between 1992 and 1996, the consolidated tax revenues of all tiers of the government dropped from 29.6% to 23.2% of GDP This overall downward trend was driven by two especially sharp drops (each in excess of 4.5 percentage points) in total tax collections that occurred in 1993 and 1995 The systemic problems created by the transition to a market economy substantially eroded the collection base of many taxes At the same time, tax administration in Russia has been traditionally weak.6 In 1996, overall budget revenues from the Profit Tax were only 4.6% of GDP, compared to 8.2% in 1992 The VAT receipts relative to GDP also dived from 10.5% to 7.5% in 1996 The reassertion of property rights however, boosted the revenues from Property Taxes and their volume has been steadily rising to reach 1.7% of GDP in 1996 Over this period, cumulative non-tax revenues - including privatization receipts - failed to increase relative to GDP In 1996, they summed up to 4% of GDP - a small improvement compared to their 1992 value of 3.7% The trends of revenue sharing between the three tiers of government were quite different for the various types of main taxes (Table 2) Throughout the period, local governments’share in VAT has been fairly stable (around 10%), while their allotments of the Profit Tax and the Personal Income Tax revenues have fallen by 3.6 and 10.9 percentage points respectively Between 1992 and 1996, regional governments enhanced their share in Profit Tax revenues by 8.3 percentage points, while broadly preserving their shares of the Personal Income Tax and the VAT – 24.6% and 15.7% in 1996 respectively Calculated as the sum of total revenues of the three tiers of government net of all budgetary transfers from one government level to another Treisman (1998b) provides detailed analysis of factors responsible for poor tax performance 36 value (0.38) and statistically significant at the 99% level of confidence The coefficient in front of the real per capita income implies that an one thousand 1991 Rubles difference in the annual per capita income in two otherwise identical regions will result in a 0.3 percentage points smaller predicted share of expenditures on Education in the consolidated budget outlays of the wealthier region Thus, regions with higher incidence of poverty (both in terms of real incomes and overall standard of living) spend a bigger proportion of their consolidated budgets on Education.30 Less urbanized regions also tend to allocate a larger share of their budget expenditures to the sphere of Education, as seen from the positive coefficient (0.11) in front of the share of rural population in 1994 Even after controlling for regional disparities in the incidence of poverty and for certain other demographic and geographic factors, the degree of revenue decentralization remains an important determinant of the share of expenditures on Education in the consolidated regional budget expenditures The OLS coefficient of the ratio between local governments total revenues and the consolidated regional budget revenues is positive (0.12) and highly statistically significant This result seems to support the theoretical proposition that lower levels of government tend to be more responsive to the social needs of the population and thus decentralization promotes a more efficient allocation of resources Furthermore, our regression analysis indicates that in times of budget revenue shortfalls local governments cushion the negative impact of the lack of funds on social expenditures by expanding budget deficits The OLS coefficient in front of the ratio of local governments budget balance to local governments total expenditures is (-0.10) and is statistically significant at the 99% level of confidence Thus, local governments with larger budget deficits, for which the value of the above ratio is negative (negative budget balance represents a deficit) and high in absolute terms, tend to allocate a bigger share of consolidated budget expenditures on Education Next, we check the robustness of the OLS coefficients discussed above by evaluating their dependence on the particular set of cross-sectional units used in the panel-data analysis To achieve this, we re-estimate the regression of the share of expenditures on Education in the consolidated regional budget expenditures with all possible sub-samples of 84 out of 85 regions and plot the resulting OLS coefficients and their 95% confidence intervals If the observed positive link between the dependent variable and the degree of revenue decentralization hinges on any one extreme realization of the latter for a given region, then the elimination of this outlier from the sample should make the corresponding OLS coefficient statistically insignificant As seen from Figure however, the OLS coefficient of the share of local governments in the consolidated regional budget revenues remains statistically significant regardless of which sample of 84 regions we use, thus confirming the statistical robustness of the corresponding fullsample OLS coefficient The same is also true for the other explanatory variables The adjusted R-squared of the regression of the share of expenditures on Education in consolidated regional budget expenditures is 0.46 and the values of the root mean squared residuals of the regression in different years are quite close to each other Thus, the overall fit of the estimated model is good and consistent over the time span of the panel The conducted White’s test of general heteroskedasticity in regression residuals returns a highly significant value and consequently all reported t-statistics are calculated with the White heteroskedasticity-consistent standard errors of OLS coefficients 30 This is consistent with the results of other studies (Stewart, 1996; Freinkman and Haney, 1997) that main social expenditures in subnational budgets are relatively well protected against budget squeeze and vary much less than expected between poor and wealthy regions 37 Figure 1: OLS Coefficients and 95% Confidence Intervals of Local Governments Share in Consolidated Regional Budget Revenues Estimated with All Possible Sub-Samples of 84 Regions Local Governments Share in Consolidated Regional Revenues 0.18 0.16 0.14 0.12 0.10 0.08 0.06 10 20 30 40 50 60 70 80 OLS Coefficient 95 % Confidence Interval The second column of Table 20 shows the results of the regression analysis of the share of expenditures on National Economy in the consolidated regional budget expenditures In contrast to the share of education expenditures, spending on enterprise and housing subsidies is not related to any of the measures of population’s wellbeing in regions Besides being contingent on the geographic location of regions, the share of expenditures on National Economy in the consolidated regional budget expenditures tends to be higher in more urbanized regions The OLS coefficient in front of the share of rural population in 1994 is (-0.17) and statistically significant at the 99% level of confidence Our interpretation of this result is that it mainly reflects the dynamics of housing subsidies that are a dominating component in National Economy spending item In Russia, housing subsidies are disproportionally concentrated in urban areas and therefore local authorities in regions with higher share of urban population are forced to allocate a bigger share of their budgets on expenditure on National Economy A central result of this regression is the finding that the share of expenditures on National Economy in consolidated regional budget expenditures is negatively related to the size of local governments budget deficit The OLS coefficient in front of the ratio between local governments budget balance and local governments total expenditures is positive (0.10) and statistically significant at the 95% level of confidence Local governments with larger budget deficits, for which the value of the above ratio is negative (negative budget balance represents a deficit) and high in absolute terms, tend to allocate a smaller share of consolidated budget expenditures on National Economy Thus, local governments are not keen on expanding subsidy provision at the expense of the expansion in deficit In other words, local governments’response to growing deficits would be likely to include cuts in subsidies but at the same time they would keep educational spending relatively protected This finding is also broadly consistent the argument that local governments in Russia are less likely that regional administrations to spend taxpayers money on large enterprise subsidies (Freinkman and Haney, 1997) 38 Next, we check the robustness of the above OLS coefficients by evaluating their dependence on the particular set of cross-sectional units used in the panel-data analysis Applying the same techniques used in the construction of Figure 1, we are able to show that the OLS estimate of the coefficient of the share of rural population in 1994 remains statistically significant regardless of which sample of 84 regions is used in its estimation This is not the case however for the coefficient of the ratio between local governments budget balance and local governments total expenditures In all sub-samples the above coefficient is positive and close to its full-sample value (0.10), but seven of the sub-samples render it statistically insignificant at the 95% level of confidence Thus, while the positive relation between the share of expenditures on National Economy in regional budget expenditures and the relative size of local governments’budget balance is a definitive characteristic of regional fiscal systems in the Russian Federation, the strength of this link in the panel is derived from the presence of a number of data outliers Consequently, the full-sample estimate of the coefficient of the ratio between local governments budget balance and local governments total expenditures should be used with caution The adjusted R-squared of the regression of the share of expenditures on National Economy in consolidated regional budget expenditures is 0.36 The rising values of the root mean squared residuals of the regression over the time span of the panel indicate that the fit of the regression was best in earlier years The conducted White’s test of general heteroskedasticity in regression residuals returns a highly significant value and consequently all reported t-statistics are calculated with the White heteroskedasticity-consistent standard errors of OLS coefficients Table 21 presents the results from the analysis of the link between fiscal decentralization and regional economic and fiscal performance The second column of Table 21 suggests that, as one may expect, real industrial growth relates positively to the purchasing power of the population and is negatively influenced by macroeconomic instability The large value of the OLS coefficient in front of the real per capita income implies that an one thousand 1991 Rubles difference in the annual per capita income in two otherwise identical regions will result in an percentage point higher rate of real industrial growth in the wealthier region The OLS estimate of the influence of the rate of inflation on real industrial output growth is (-0.03) The central finding in this regression is the positive link between the real growth of industrial output and the degree of revenue decentralization The value of the OLS coefficient of the ratio between local governments total revenues and consolidated regional budget revenues is (0.15) and is statistically significant at the 95% level of confidence 39 Table 21 Impact of Decentralization on Fiscal and Economic Performance Regressors / Dependent Variable Consolidated regional budget balance as percent of the consolidated regional budget expenditures Constant Real industrial output growth (% to previous year) 74.93 (15.11) Percent of rural population in 1994 -0.17 * (-2.23) Local governments total revenues as percent of the consolidated regional budget revenues Regional transfers to local governments as percent of local governments total expenditures Inflation -0.15 0.15 * (-5.44) (2.32) 0.22 (2.62) 0.04 -0.03 (9.05) (-6.14) Real per capita income 0.001 (3.1) Sample Total Panel (Unbalanced) Observations Adjusted R-squared Durbin-Watson White's Heteroskedasticity Test 1994 1996 250 0.34 1.64 85.61 1994 1996 243 0.19 2.25 26.21 (0.00) ** (0.00) ** Standard Error of Regression 8.80 10.79 Root Mean Squared Residual 1994 7.90 10.43 Root Mean Squared Residual 1995 7.13 13.05 Root Mean Squared Residual 1996 10.75 7.59 Notes: Unless otherwise indicated, numbers in parenthesis are t-statistics calculated with the White heteroskedasticity consistent standard errors of OLS coefficients Unless otherwise indicated, OLS coefficients are statistically significant at the 99% level of confidence * Statistically significant at the 95% level of confidence ** P-value The OLS coefficients of real per capita income and the rate of inflation are statistically robust as they remain statistically significant and close in value to the full-sample estimates, when re-estimated with all possible sub-samples of 84 out of 85 regions Figure presents the OLS coefficients and the 95% confidence intervals of the share of local governments in consolidated regional budget revenues In all sub-samples the above coefficient is positive and close to its full-sample estimate, but on one occasion (when the Altay Republic is removed from the sample) it becomes marginally insignificant at the 95% level of confidence Consequently, while the positive link between revenue decentralization and the real 40 industrial output growth is well documented by the data, caution should be used in interpreting the magnitude of this relation Figure 2: OLS Coefficients and 95% Confidence Intervals of Local Governments Share in Consolidated Regional Budget Revenues Estimated with All Possible Sub-Samples of 84 Regions Local Governments Share in Consolidated Regional Revenues 0.4 0.3 0.2 0.1 0.0 -0.1 10 20 30 40 50 60 70 80 OLS Coefficient 95% Confidence Interval The adjusted R-squared of the regression of real industrial output growth is 0.19 and there is no trend in the values of the root mean squared residuals of the regression over the time span of the panel The conducted White’s test of general heteroskedasticity in regression residuals returns a statistically significant value at the 95% level of confidence and consequently all reported t-statistics are calculated with the White heteroskedasticity-consistent standard errors of OLS coefficients Table 21 also describes the link between the degree of revenue decentralization and the size and sign of the consolidated regional budget balance The relative size of the consolidated regional budget balance is negatively related to the degree of regional decentralization The value of the OLS coefficient of the measure of revenue decentralization is (-0.15) and is statistically significant at the 99% level of confidence Thus, regions that assign a bigger share of total budget revenues to local governments have a less favorable budget balance position (if we take two regions with identical rates of inflation, share of rural population and relative size of regional transfers to local governments total expenditures, the region that assigns a bigger share of budget revenues to local governments will have a smaller predicted budget surplus or a large deficit than the more centralized one) However, regions that channel a bigger portion of funds to local governments through interbudgetary transfers tend to have a more favorable consolidated budget balance The coefficient in front of the relative size of regional transfers to local governments total expenditures is positive (0.22) and highly statistically significant Combination of these two coefficients may be interpreted in a way that decentralization overall weakens fiscal control in regional systems but all other factors being equal, a 41 higher role of transfers mitigates this impact of decentralization Regional transfers tend to be a more efficient instrument of budget control within decentralized budget systems compared to tax revenue sharing Finally, the relative size of regional budget balance is positively related with the rate of inflation and negatively with the share of rural population in regions The respective OLS coefficients are (0.04) and (-0.17) and are both statistically significant at the 95% level of confidence Next, we check the robustness of the OLS coefficients discussed above by evaluating their dependence on the particular set of cross-sectional units used in the panel-data analysis Applying the same techniques used in the construction of Figures and 2, we are able to show that the OLS estimates of the coefficients of the rate of inflation, the share of local governments in consolidated regional budget revenues and the relative size of regional transfers to local governments total expenditures remain statistically significant, regardless of which sample of 84 regions is used in their estimation This is not the case however for the coefficient of the share of rural population in 1994 In all sub-samples the above coefficient is negative, but three of the sub-samples render it statistically insignificant at the 95% level of confidence Consequently, the full-sample estimate of the coefficient of the share of rural population in 1994 (-0.17) should be interpreted with due diligence Figure demonstrates the statistical robustness (in terms of independence from data outliers) of the OLS estimate of the coefficient of the share of local governments in consolidated regional budget revenues Figure 3: OLS Coefficients and 95% Confidence Intervals of Local Governments Share in Consolidated Regional Budget Revenues Estimated with All Possible Sub-Samples of 84 Regions Share of Local Governments in Consolidated Regional Revenues -0.08 -0.10 -0.12 -0.14 -0.16 -0.18 -0.20 -0.22 10 20 30 40 50 60 70 80 OLS Coefficient 95% Confidence Interval The adjusted R-squared of the regression is 0.34 and the values of the root mean squared residuals of the regression indicate that the fit of the estimated model was particularly good in 1994 and 1995, but worsened in the following year The conducted White’s test of general heteroskedasticity in regression residuals returns a statistically significant value at the 95% level of confidence and 42 consequently all reported t-statistics are calculated with the White heteroskedasticity-consistent standard errors of OLS coefficients Conclusions The analysis of the data on the structure of regional budgets for 1992-96 suggests that, while quite substantive, the relative share of local governments in the Russian consolidated budget did not expand since 1994 and they remain in control of about a quarter of total budget expenditures However, at the subnational level, the relative size of the local budgets increased at the expense of some compression in regional budgets 1996 was the first year, when local governments collected more budget revenues (6.4% of GDP) and spent more than regional administrations At the same time, the relative role of local governments has been substantially increasing in all sorts of social financing including education, health, and social protection With a growing share of federal budget spent on debt service, the role of the federal government in financing public goods and services increasingly becomes less important The cross-regional variation in degree of decentralization of subnational budgets is high and so far does not show any decline Variation in revenue sharing is much more serious than variation on the expenditure side, where common and stable patterns in expenditure assignments are quite noticeable (e.g in education and health) All major taxes remain to be shared between three government levels, and no progress has made towards a more transparent system of tax assignments Main factors that could explain this variation in the degree of decentralization are the level of poverty and an administrative status of the region Regions, which have been historically less wealthy, have a more centralized budget system This seems to represent a global phenomena: urbanization, growth in education, and decentralization are closely inter-related, and all positively related to growth There is a major difference in budget arrangements between ethnically Russian regions and national republics and okrugs In both cases, the average level of expenditure decentralization is similar but the contrasts on a revenue side are striking In the case of oblasts and krais, decentralization has been evolving through the provision of local authorities with a bigger share of subnational tax revenues, whereas in republics and autonomous okrugs (before 1996) the expansion of local outlays has been financed through larger interbudgetary transfers from regional governments We describe two various patterns of fiscal evolution: the former could be called “true decentralization”, the latter may be described as a “redistribution model” There is also a significant correlation between decentralization and geographic location Regions situated in close proximity tend to have similar budget arrangements Interactions between neighbors in the area of budget settings seem to be quite intensive and probably are supported through activities of local regional associations The size of region’s territory does not influence the decentralization outcome The analysis provides quite robust and statistically significant estimates of the impact of decentralization on fiscal and economic performance In particular, when we control for other social variables such as real per capita income, fiscal decentralization is positively related to the share of education spending in regional consolidated budgets Regions with more decentralized finances tend to have a lower economic decline These results seems to be fully consistent with conventional predictions of the decentralization theory that underline potential positive growth impact of decentralization At the same time, negative correlation between decentralization and regional budget balance suggests that overall budget control is weaker in more decentralized regions Instability and non- 43 transparency of inter-governmental fiscal relations at the regional level in Russia does not provide individual governments with sufficient incentives for responsible fiscal policy Under existing fiscal arrangements, there is a risk that further decentralization could be accompanied by additional growth in public deficit and debt Given current positive impact of decentralization in Russia on growth and expenditure structure, the federal government should be more decisive in protecting local self-governance and budget autonomy It should develop and enforce some universal models of interactions between regional and municipal governments that - within the limits of the Constitution - would provide for more stability and predictability in formation of local budgets and expand minimum requirements on local shares in main taxes To address potential negative fiscal impacts of decentralization, the federal government has to impose stricter limits on the size of subnational governments’current budget deficit as well as on the overall stock of their debt 44 REFERENCES Alesina, Alberto, Ricardo Hausmann, Rudolf Hommes, and Ernesto Stein 1996 Budget Institutions and Fiscal Performance in Latin America NBER WP 5586, May Bahl, Roy B and Johannes J Linn 1992 Urban Public Finance in Developing Countries NY Oxford University Press Bird, Richard M., Robert D Ebel, and Christine I Wallich 1995 “Fiscal Decentralization: From Command to Market.” In Bird, Ebel and Wallich, eds., Decentralization of the Socialist State: Intergovernmental Finance in Transition Economies Washington, D.C.: World Bank Dillinger, William and Steven B Webb 1998 Fiscal Management in Federal Democracies: Argentina and Brazil June 25, World Bank, Mimeo Davoodi, Hamid and Heng-fu Zou 1998 Fiscal Decentralization and Economic Growth Journal of Urban Economics, 43:244-257 Fornasari, Francesca, Steven B Webb, and Heng-Fu Zou Decentralized Spending and Central Government Deficit: International Evidence September 23, mimeo Freinkman, Lev and Michael Haney 1997 What Affects the Propensity to Subsidize: Determinants of Budget Subsidies and Transfers Financed by the Russian Regional Governments in 1992-1995 World Bank: Policy Research Working Paper 1818,August Freinkman, Lev and Stepan Titov 1994 Decentralization of the Russian Fiscal System: the Case of Yaroslavl The World Bank Discussion Series Paper Fukasaku, Kiichiro, and Luis R de Melo Jr 1997 Fiscal Decentralization and Macroeconomic Stability: The Experience of Large developing and Transition Economies K Fukasaku, R Hausmann, Eds Democracy, Decentralization and Deficit in Latin America IDB-OECD Hunter, Jeff and Anwar Shah 1998 Applying a Simple Measure of Good Governance to the Debate of Fiscal Decentralization World Bank: Policy Research Working Paper 1894, March Inman, Robert P and Daniel L Rubinfeld 1997 Rethinking Federalism Journal of Economic Perspective 11: 4: 43-64 Institute for Local Government and Public Service 1994 Local Governments in the CEE and CIS Budapest Kuznetsova O., Lavrov A., and Y David 1997 Interbudgetary Relations in Subjects of the Russian Federation In Budgetnoye Ustroistvo v Rossiskoi Federatsii, Moscow: Moskovskii Pbshetsvenyi Nauchnyi Fond Lavrov, Aleksei (Ed) 1996a Economic Policies of Subjects of the Russian Federation Report prepared for World Bank, November Lavrov, Aleksei (Ed) 1996b Budget System of Subjects of the Russian Federation Report prepared for World Bank, November Lavrov, Aleksei 1995 Problemy Stanovleniya i Razvitiya Byudzhetnogo Federalizma v Rossii Analytical Department of the Presidential Administration Moscow, September Le Houerou, Philippe 1995 Fiscal Management in the Russian Federation World Bank Report No 14862-RU McLure, Charles, Christine Wallich, and Jennie Litvack 1995 Special Issues in Russian Federal Finance: Ethnic Separatism and natural Resources In Bird, Ebel, Wallich Mitcheneck, Beth 1997a Restructuring Russian Urban Budgets: 1991-1995 Europe-Asia Studies, 49: 989-1015 Mitcheneck, Beth 1997b Regional Governance in Russia: The Role of Accumulated Alliances University of Arizona Department of Geography Discussion paper 97-4, August Morozov, Alexander 1998 Intergovernmental Transfers Reform in the Russian Federation World Bank: fiscal policy note, June Oates, Wallace 1972 Fiscal federalism NY: Harcourt Brace Jovanovich Stewart, Kitty 1996 The Impact of Fiscal Decentralization on Social Expenditures in the Regions of the Russian Federation, The World Bank Mimeo, January 31 45 Tanzi, Vito 1996 Fiscal Federalism and Decentralization: A Review of Some Efficiency and Macroeconomic Aspects Annual World Bank Conference on Development Economics, 1995 Washington, D.C., World Bank Treisman, Daniel 1998a Deciphering Russia’s Federal Finance: Transfers to the Regions in 1995-6 Europe-Asia Studies July Treisman, Daniel 1998b Russia’s Tax Crisis: Falling Revenues in a Transitional Economy UCLA: manuscript Treisman, Daniel 1996 The Politics of Intergovernmental Transfers in Post-Soviet Russia, British Journal of Political Science July: 299-335 Wallich, Christine.1994 Russia and the Challenge of Fiscal Federalism Washington, D.C.: World Bank Wildasin, David E 1997 Externalities and Bailouts: Hard and Soft Budget Constraints in Intergovernmental Fiscal Relations World Bank: Policy Research Working Paper 1843, November Wildasin, David E 1998 Fiscal Aspects of Evolving Federations World Bank: Policy Research Working Paper 1884, February World Bank 1998 Subnational Budgeting in Russia: Preempting a Potential Debt Crisis Draft Report, July Yandiev, Magomed 1997 Regional’nyue i Mestnyue Budgetnyue Sistemy Moscow TEIS Zhang, Tao and Heng-fu Zou 1997 The Growth Impact of Intersectoral and Intergovernmental Allocation of Public Expenditures: With Applications to China and India Mimeo, December Zhang, Tao and Heng-fu Zou 1998 Fiscal Decentralization and Economic Growth in China Journal of Public Economics 67: 221-240 Zhuravskaya, Ekatherina V 1998 “Incentives to Provide Local Public Goods: Fiscal Federalism Russian Style” Harvard University: manuscript 46 APPENDIX 1: Budget Revenues by Level of Government / mln current Rubles / Budget Revenues / Year 1992 1993 1994 1995 1996 Total Revenues - federal - regional - local 7087890 3865500 1581210 1641180 62956115 24883100 19257679 18815336 225736973 88132100 73163015 64441858 513808943 232117348 143457475 138234120 716729480 320307776 192489685 203932019 Total Revenues Net of Interbudgetary Transfers - federal - regional - local 6341454 3816100 1333971 1191383 N/A 24853300 16592346 N/A 183673998 86660854 50264032 46749112 440654824 230852255 112282721 97519848 597950853 319915976 137326207 140708670 746436 49400 247239 449797 N/A 29800 2665333 N/A 42062975 1471246 22898983 17692746 73154119 1265093 31174754 40714272 118778627 391800 55163478 63223349 5631258 3395300 1095213 1140745 43097151 19656800 12211898 11228453 163986662 79187126 43235455 41564081 362316500 175345255 94919773 92051472 510714154 254419807 120908773 135385574 Profit Tax - federal - regional - local 1564355 645900 471115 447340 16822332 5471600 6684070 4666662 49007033 17177304 19050582 12779147 116646509 41504403 45527378 29614728 100690719 36855317 38681807 25153595 VAT - federal - regional - local 1999443 1500700 302792 195951 11259243 7251000 2532278 1475965 41680491 28025154 8780230 4875107 95226882 71787639 13363949 10075294 164055392 122776879 25727697 15550816 P e rsonal Income Tax - federal - regional - local 431025 98458 332567 4394486 1019594 3374892 17548546 108164 4532897 12907485 36299400 3269453 8786503 24243444 56129966 5143127 13789278 37197561 Excise Taxes - federal - regional - local 209697 100500 87830 21368 1780439 898600 715513 166326 7468805 4485639 2391839 591327 24059709 17527221 5130624 1401864 62603074 54364461 6432197 1806416 53890 28235 25656 546696 248826 297870 4840812 2021871 2818941 16727397 831425 7069226 8826746 36710926 298287 16185905 20226734 121760 77768 43992 851973 248000 346024 257949 2439097 373964 1095885 969248 12271205 2996888 4462422 4811895 22507838 5642115 8780583 8085140 1251237 1148200 29017 74020 7441973 5787600 665584 988789 41026378 29016901 5363151 6646326 61064101 37428226 10558458 13077417 68016239 29339621 11311306 27365312 710196 420800 238758 50638 N/A 5196500 4380448 N/A 19687336 7473728 7028577 5185031 78338324 55507000 17362948 5468376 87236699 65496169 16417434 5323096 19000000 171500000 Transfers from Other Levels of Government - federal - regional - local Total Tax Revenues - federal - regional - local Property Taxes - federal - regional - local Natural Resources Tax - federal - regional - local Other Taxes - federal - regional - local Non-Tax Revenues - federal - regional - local GDP 610700000 1630100000 2200200000 47 Notes: The 1992, 1993 and 1994 data on "Total Revenues" on federal level have been augmented with the revenues accrued in the following off-budget accounts: "Road and Ecological funds" and "Foreign Economic Activity" The category "Other Taxes" on federal level is obtained as the difference between "Total Tax Revenues" and the sum of all itemized tax revenues shown in the above table The category "Other Taxes" on regional and municipal level is obtained directly from regional budget data In 1992 and 1994 this category includes inter alia the revenues from the Land tax and Gosudarstvennaia poshlina The category "Non-Tax Revenues" is calculated as the difference between "Total Revenues" and the sum of "Total Tax Revenues" and "Interbudgetary Transfers, Received" Regional and municipal data for 1996 not include the revenues of a number of "closed cities", which budgets were not included in the official statistics for previous years The 1996 figure of Municipal Total Tax Revenues is an estimate, based on the municipal budget data 48 APPENDIX 2: Budget Expenditures by Level of Government / mln current Rubles / Budget Expenditures / Year 1992 1993 1994 1995 1996 10652046 7772300 1402813 1476933 79136666 43042900 18018044 18075722 281797011 148006980 71512993 62277038 587851384 300682605 148072692 139096087 901666566 487730641 207204439 206731486 9810435 7455500 893412 1461523 N /A 38638200 N /A 17478014 235950128 124530211 49757657 61662260 508489455 265838751 106309492 136341212 776687684 430654280 142865748 203167656 841611 316800 509401 15410 N /A 4404700 N /A 597708 45846883 23476769 21755336 614778 79361929 34843854 41763200 2754875 124978882 57076361 64338691 3563830 5020573 4056900 438676 524997 23061487 11202100 5674635 6184752 64706923 19646313 22488737 22571873 136006447 35819955 48211021 51975471 188338823 51775100 61033324 75530399 Education - federal - regional - local 679703 229700 98249 351753 6968581 1356400 1317678 4294503 27528711 5487311 5250503 16790897 56700424 9023343 11177017 36500064 84097340 12231344 15122035 56743961 Health and Sport - federal - regional - local 468953 52800 133703 282449 5338754 563000 1611264 3164490 19820376 2340921 6620973 10858482 38709964 3828008 12935045 21946911 57494614 5843945 19014275 32636394 Social Protection - federal - regional - local 204686 147000 41819 15867 1265023 657600 441003 166420 4775064 2403178 1666283 705603 20850750 3864953 6487823 10497974 38791956 12104451 10377977 16309528 Administration and Justice - federal - regional - local 350326 282000 19264 49062 3982490 3171300 241678 569512 18082220 14712791 1121637 2247792 39099609 24654896 N /A N /A 61179795 38965289 11649041 10565465 Culture and M ass M e dia - federal - regional - local 115970 59400 24541 32030 978755 340300 295580 342875 4463105 1768418 1289253 1405434 9004354 2847969 2769236 3387149 13071548 4540463 3825785 4705300 Defence - federal - regional - local 855000 855000 0 7210000 7210000 0 28499629 28499629 0 49565077 49565077 0 76356954 76356954 0 Loans - federal - regional - local 957897 876300 38333 43264 N /A 2909600 N /A N /A 16629519 14062395 2071447 495677 16169517 9524891 5591244 1053382 20113400 6087923 N /A N /A 1157327 896400 98826 162101 N /A 11227900 N /A N /A 51444581 35609255 9248824 6586502 142383313 126709659 N /A N /A 237243254 222748811 N /A N /A 19000000 171500000 Total Expenditures - federal - regional - local Total Expenditures Net of Interbudgetary Transfers - federal - regional - local Transfers to Other Levels of Government - federal - regional - local National Economy - federal - regional - local Other Expenditures - federal - regional - local GDP 610700000 1630100000 2200200000 49 Notes: The category "Administration and Justice" sums the data from "State administration" and "Law enforcement" expenditure classifications The category "Other Expenditures" is formed as the difference between "Total Expenditures" and the sum of all itemized expenditures shown in the above table The 1993 figures of the category "Administration and Justice" not include data on law enforcement expenditures on regional and municipal level The 1993 figure of the "Health and Sport" category does not include data on sport expenditures The 1992, 1993 and 1994 data on "Total Expenditures" on federal level have been augmented with the expenditures from the following off-budget accounts: “Foreign Economic Activity” and "Road and Ecological funds" Regional and municipal data for 1996 not include the expenditures of a number of "closed cities", which budgets were not included in the official statistics for previous years "Total municipal Expenditures" is defined as the sum of total expenditures of municipalities net of transfers among municipalities Due to the missing data, the 1993 figures on interbudgetary transfers were estimated based on the revenue side data other municipalities, adjusted for measurement errors 50 APPENDIX 3: Budget Balance by Level of Government / mln current Rubles / Budget Balance / Year 1992 1993 1994 1995 1996 Consolidated Budget Balance - federal - consolidated regional - regional - local -3566233 -3906800 340567 176320 164246 -16180551 -18159800 1979249 1239635 739614 -56060038 -59874880 3814842 1650022 2164820 -74042441 -68565257 -5477184 -4615217 -861967 -184937086 -167422865 -17514221 -14714754 -2799467 GDP 19000000 171500000 610700000 1630100000 2200200000 APPENDIX 4: Budget Balance before Transfers by Level of Government / mln current Rubles / Budget Balance / Year 1992 1993 1994 1995 1996 Consolidated Budget Balance - federal - consolidated regional - regional - local -3566233 -3639400 73167 438482 -270141 -16180551 -13784900 -2395651 N/A N/A -56060038 -37869357 -18190681 506375 -14913148 -74042441 -34986496 -39055945 5973229 -38821364 -184937086 -110738304 -74198782 -5539541 -62458986 GDP 19000000 171500000 610700000 1630100000 2200200000